I’m a value investor. So, I like to search for companies that are trading at good value. A list of stocks that are near their respective 52-week lows is a good place to start my search for a good reason.
These are the stocks that are either neglected or beaten down by investors. And, some of these stocks can be bargains in relation to their actual economic worth because market participants can at times react too negatively to certain companies that have sound long-term prospects but have experienced some short-term stumbles.
As such, I will screen for stocks that are trading near 52-week lows nearly once every week. There are many stocks that pop up on my screen each time I run it. In here, let’s look at two such stocks that also happen to be blue chips (in Singapore’s stock market parlance, blue chips refer to the 30 constituents of the market barometer, the Straits Times Index (SGX: ^STI)). The duo are: ComfortDelGro Corporation Ltd (SGX: C52) and Singapore Telecommunications Limited (SGX: Z74).
Source: Yahoo Finance; SGX Stock Facts
Land transport giant ComfortDelGro has operations in seven countries, and a total fleet size of 43,500 buses, taxis and rental vehicles. The countries it’s in include Singapore, China, the United Kingdom, Ireland, Australia, Vietnam, and Malaysia.
In early November, ComfortDelGro released its results for the third quarter of 2017. The company reported a 2.4% year-on-year decline in revenue for the quarter to S$991.4 million. Net profit attributable to shareholders fared worse, as it was down by 8.2% to S$80.1 million.
ComfortDelGro’s chief executive officer, Yang Ban Seng, summarised the reporting quarter with the following comments in the earnings release:
“The operating environment has been difficult. Although the public transport services business continued to grow, the taxi business has seen strong competition. But we are in this business for the long haul and we will continue to look at sustainable strategies through strategic alliances. We will also continue to look for opportunities to grow our business in Singapore and overseas.”
In its earnings release, ComfortDelGro also said that its taxi business will continue to see challenges, mainly due to competition from ride-sharing businesses. Worse still, BlueSG, the first large-scale electric car-sharing scheme in Singapore, started operations earlier this month. ComfortDelGro’s taxi business appears to be heading for a really tough time ahead.
But, ComfortDelGro’s fighting back. In early December, ComfortDelGro announced that it would be buying a 51% stake in ride-sharing app Uber’s wholly-owned Singapore car rental subsidiary, Lion City Holdings Pte Ltd. The deal would see ComfortDelGro and Uber collaborate closely in Singapore’s taxi market.
Next up we have Singtel, which likely needs no introduction, given that it is Singapore’s largest operational telco.
Singtel’s latest results – for the second quarter of its financial year ending 31 March 2018 – was released in early November. SingTel reported that its revenue for the quarter was up 6.9% year-on-year to S$4.37 billion. The improvement in revenue was mainly driven by better performances in its Group Enterprise and Group Digital Life business segments.
Net profit attributable to shareholders grew significantly by 197.1% to reach S$2.89 billion due to a one-off gain from Singtel’s partial sale of its stake in NetLink NBN Trust (SGX: CJLU); NetLink NBN Trust was spun-off from Singtel through an IPO (initial public offering) in July this year. Singtel’s underlying net profit for the quarter – which excludes the gain from NetLink NBN Trust’s IPO – actually fell by 4.1% year-on-year to S$929 million.
Singtel announced an interim dividend of 6.8 cents per share for the reporting quarter, and also a special dividend of 3.0 cents per share (thanks to the spoils from the NetLink NBN Trust IPO), bringing the total dividend for the quarter to 9.8 cents. In the same quarter a year ago, Singtel’s interim dividend was unchanged at 6.8 cents per share, and there was no special dividend.
Singtel’s price-to-earnings ratio looks really low in the table above, but that’s because of inflated profits from the one-off gain related to NetLink NBN Trust. If we adjust for that, Singtel’s price-to-earnings ratio at the current price is around 15.
A Foolish conclusion
It’s worth noting that not every company with a stock price near a 52-week low is a legitimate bargain. A declining stock price can decline yet further if the underlying business performance continues to weaken.
Nothing we’ve seen here about ComfortDelGro, and Singtel should be taken as the final word on their investing merits. The information presented in this piece should be viewed only as a useful starting point for further research.
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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Lawrence Nga doesn't own shares in any companies mentioned.